Nice work, if you can get it
December 31, 2008 – 1:28 am
The Federal Reserve will print money to buy $500 billion worth of mortgage-backed securities by June, specifically MBS issued by Fannie, Freddie and their sister Ginnie Mae. And guess who the Fed has hired to manage the purchases? PIMCO, Goldman, BlackRock and Wellington.
This is quite a scam for all of them, especially PIMCO. The ultimate self-bailout you might call it. As of June 30th, 61% of the PIMCO’s assets were invested in MBS. $500 billion in total. No doubt the others also own a pile of Fannie/Freddie/Ginnie bonds.
In sum, these firms just got hired to use the public’s money to buy assets from themselves. (Or, as Mr. Mortgage puts it, foxes are running the hen house.)
Is it any wonder why PIMCO chief Bill Gross argued so vociferously for Treasury to start buying troubled assets? In a much publicized investor letter on Sept 4th, he said the following:
If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.
To be fair, he wasn’t wrong. A “debt liquidation of historic proportions” is indeed what would have happened had the Fed and Treasury not stepped in. And that would have crippled the world economy. But Gross, the largest bond fund manager on the planet, may have been hardest hit of all.
Once upon a time, the Chinese owned hundreds of billions worth of MBS themselves, as did the Russians. But when Fan and Fred collapsed, the foreigners skedaddled. Can you blame them? They had invested their people’s hard-earned savings in piles of Fannie and Freddie debt which, save for a U.S. Treasury guarantee, would have fallen precipitously in value. Now the government has to make good on that guarantee, buying up all these MBS that no one else wants.
The Fed argues this will boost housing by lowering mortgage interest rates. In reality, lower rates may actually “spur a new wave of defaults.”
By the way, the Fed will “monitor” each firm to avoid conflicts of interest:
Each investment manager will be required to implement ethical walls that appropriately segregate the investment management team that implements the Federal Reserve’s agency MBS program from other advisory and proprietary trading activities of the firm. The New York Fed will monitor each investment manager’s compliance with this requirement.
Good thing we have “ethical walls” to protect taxpayers.
Posted in Economy, Fed, Interest Rates, Wall Street, bailout, credit crunch, housing, taxpayer issues |
12 Responses to “Nice work, if you can get it”
i’m so angry i don’t know what to type.
By million on Dec 31, 2008
Somebody please stop these criminally insane people!!!!
Are the American people really this oblivious and lazy, or do they just believe there’s nothing they can do about it so, may as well let it happen? Or, is it that they we are over-worked, under-paid, debt/tax slaves without an ounce of energy after our day is done to even play with the kids, let alone fight for our country back??
Pleeeeeeeeese people take a weekend and somebody form a PROTEST!! Not just any protest, the largest protest any country has ever witnessed!! I’m talking millions upon millions of people in the streets!! Can you imagine how it would bring these issue immediately to the forefront?! The change it could bring about?! Can you imagine how it would slap people in the face and wake them up from their zombie slumbers?!
By Tick-tick-BOOM! on Dec 31, 2008
Looks like the guys over at TPM are stealing your lines!
http://www.talkingpointsmemo.com/archives/2008/12/nice_work_if_yo_2.php
By HHB on Dec 31, 2008
Are we surprised?
Bobba
http://www.scamandfraudblog.com
By Bobba Louie on Dec 31, 2008
My theory is that while the Fed is buying MBS’s, almost everyone who’s NOT the Fed will be selling them. Oh sure, some traders may buy over the first month or two of the Fed’s six month planned MBS-purchasing period, but as the end of the Fed’s intervention nears, you’d have to be pretty damn dumb to be left holding MBS’s. So prices will fall & rates rise even before the Fed’s done trying to force down rates. I suppose the Fed could double down & print even more money with which to try to manipulate the agency MBS market, but at some point, they’ll be done with that scam (probably when they’ve realized it’s not working), and there will be a rapid snap-back causing rates to rise. The net effect of the manipulation scheme may be higher rates, especially since printing money wil eventually result in higher inflation.
By John on Dec 31, 2008
I was outraged when I read this, then I saw ‘million’’s comment and had to laugh.
My question is: What will they do with them once they buy them? Loan mods? Foreclosure? Limbo for homeowners?
I keep reading MSM bullshit about the economy turning around in late 2009 or the housing market hitting bottom mid-2009.
Delusional, to the extent of being dangerous.
By Lisa on Dec 31, 2008
I appreciate the respondents’ frustrations…I feel frustrated as well. But having a GSE default isn’t really in the nation’s best interest. It will make are credit situation much worse. Good luck to all of the retirees as well as the rest of us, who rely on their savings to pay their bills.
The solution, as I see it, is to raise the minimum taxable income to $50,000 for a couple, and abolish the TARP. People would be able to pay their credit cards, rent and Mtg’s and therefore the banks wouldn’t need TARP monies. Cutting taxes for the wealthy is bullshit (to coin a word from another respondent).
Number two, is to rebuild our countries “3rd world” infrastructure. We could divert money from Iraq and Afghanistan (and everywhere else we have troops), and bring our troops and capital back here to fix our bridges, roads, and structures, and at the same time, help mend our economy. Besides the economic and structural benefits, there will be humanitarian benefits. Less soldiers and civilians will die.
Adam
http://www.adamjlevine.com
By Adam Levine on Jan 1, 2009
I recently read an interview in “Fortune” mag with Bill Gross. He’s advocating buying “too big to fail” co’s bonds because the gov’t will back them up.
He also said that Americans will need to adjust to a lower standard of living.
The American taxpayer is being forced to provide a hedge for PIMCO’s bets.
I actually have a grudging admiration for Mr. Gross.
He’s pulling off a great scam! And he’s telling us to our faces how he’s working it…
What chutzpah!
By shinola on Jan 1, 2009
Someone should put a NAMBLA sticker on his car’s bumper.
By Dan on Jan 1, 2009